S&P puts Sompo bond on watch

S&P said it placed Sompo Japan’s $1.4 billion of 5.325% subordinated notes due 2073 on CreditWatch with negative implications.

The agency noted the issuer’s consolidated solvency margin ratio has declined and there is an increased possibility of a mandatory interest deferral on the notes.

“This deferral would be triggered by the insurer booking a regulatory SMR of less than 200%. This ratio on a consolidated basis dropped from 652.1% at the end of March 2022 to 535.4% at the end of September 2022. The fall was mainly because of 1) a decline in unrealized gains on securities held by Sompo Japan and its overseas subsidiaries, and 2) an increase in various risks related to overseas subsidiaries as the yen depreciates, in our view,” S&P said in a press release.

The agency warned that if the ratio continues to decline and hover at a lower level, it may downgrade the notes a notch.

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